Your Personal Saving Allowance
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You have a 'Personal Savings Allowance' or PSA, which means you can earn interest - from savings, loans - such as peer-to-peer or bonds - tax free up until a certain amount. Your tax-free allowance depends on how much income you earn in a tax year - that's from Apri 6th to April 5th the following year.
Basic Rate tax-payers can earn £1,000 interest a year tax-free and Higher Rate tax-payers can earn £500. Unfortunately, Additional Rate tax-payers don't have an allowance and have to pay tax on any interest they earn outside of ISAs.
Not sure which income tax-band you are in? Here's a breakdown:
|Your Income||Income Tax Band||Your Tax-Free Allowance|
|Up to £11,850||No Rate||£1,000|
|£11,851 to £46,350||Basic Rate||£1,000|
|£46,351 to £150,000||Higher Rate||£500|
|Over £150,000||Additional Rate||£0|
Earning more interest than your PSA? Open a Cash ISA for interest from savings, a Stocks & Shares ISA if interest is from Bonds or an Innovative Finance ISA if interest is from Peer-to-Peer lending.
Side note: You can only open one Cash ISA and one Investment ISA in a tax-year.